Best Practices from SIG University Part III: Key Takeaways

by Jamie Liddell, Editor, Outsource and Co-Head of EMEA, SIG

Jamie LiddellIn our final installment in the discussion on the importance of education and the value of options like SIG University, Jamie Liddell shares key takeaways from students who hailed from Honda North America, PNM Resources and Florida Blue.

Students Become Teachers
An “enthusiasm for feedback” was highlighted by Esteban Valenzuela, a project manager with Honda North America Indirect Procurement, as a critical aspect of SIG University. According to Esteban, the suggestions made by the students as they went through the course as to how it might be improved were assessed, and solutions implemented in real time by the SIG U staff (in Esteban’s words, “Throughout the course I have made many recommendations and the SIG staff have already made many changes.”)

Having come to the end of the course and with the ability to look back holistically on the experience, we asked our students what other suggestions they could make to keep SIG University firmly on the continuous improvement pathway. Without revealing too much, the depth and variety of the feedback (from the structural – with Tammy Way, a Sourcing Consultant for Generation at PNM Resources, who suggested we launch two new certifications; to the tactical – with Esteban’s advice to develop workbooks, videos and enhanced interactivity) was heartwarming evidence of the degree to which the students had embraced the course and wished to contribute their own efforts to SIG University’s success: exactly the kind of philosophy which SIG U and the broader SIG family seek to develop within the sourcing profession as a whole.

Key Takeaways
While confident that our students would benefit as individuals both from the knowledge gained during the course and from the Certified Sourcing Professional certification they achieved at its end, we were keen to discover which specific aspects of the course they thought would be most useful as their careers progress.

For Esteban Valenzuela, it was simply impossible to highlight one particular aspect of the course above the others: while the latter parts felt “more focused on project/category management,” “all the topics I believe are relevant to all business careers; however, I don’t believe I can pinpoint one aspect from the course that would be of most value at this time as I feel a good understanding of all aspects are vital to a person’s success.”

Tammy Way meanwhile stood at the other end of the spectrum with one particular aspect very much leaping out: “I loved the Sourcing Wheel sections and have printed the wheel out and hung it in my office. It’s a great way to visualize the processes and their interdependencies.”

For Allison Brown, a ten-year procurement and vendor management professional working for Florida Blue, “The communication and strategic points within the various modules were very helpful. Our organization is taking steps to begin to implement Category Management and as we do that there were certain points provided in the information that assisted in laying out how we would go in that direction. There were also good project plan recommendations that can be instituted overall throughout the procurement organization.”

The Greater Good
Finally, with an eye on SIG U’s mission to help not just its individual students but the sourcing profession as a whole excel, we asked our graduates how well they felt the topics and trends covered by the CSP course are understood by the sourcing community in the form of their peers both within and outside their own organisations.

Allison Brown highlighted the challenge posed by the very varied and diverse nature of the sourcing community and the different levels of maturity to be found within the space: “I believe that many people within our organization and the sourcing industry do understand the topics discussed but at different levels of understanding. While one person may understand contract negotiations in depth they may not understand how to put a communication plan together. Or maybe they understand the tactical components but do not under the strategic aspects of gaining buy-in from their leadership. That is why the sourcing industry as a whole needs something that provides that foundational information that level sets the understanding between all the players. From what I can tell Sig U seems to have understood that gap and created something that can provide a foundational understanding to all the students.”

Esteban Valenzuela pointed at three trends in particular, covered in detail by the course, that the sourcing function as a whole needs to get up to speed on extremely quickly if it is to maintain the maximum relevance and utility to the business: “New and emerging technologies, BPOs, and security are current trends that I believe sourcing professionals need to pay close attention to in 2016. As new tech enters the market at an accelerated rate we companies must explore how to leverage these new tools and products to increase not only productivity but efficacy. Furthermore, as companies’ need for real-time information at their fingertips grows, the necessity for increased protection of that information is never more apparent than today.”

Last but by no means least, Tammy Way referred to some of the soft skills covered by the CSP course – skills vital to addressing some of the most intractable challenges facing sourcing professionals anywhere: “I think our department understands the trends well even if we are sometimes met with the challenge of how to achieve the buy-in needed to get our clients on board or to see the value-add. As an organization, we have a steep learning curve when it comes to recognizing the need of supply chain to become more integrated into the business model and evolve in time with market trends.”

The Next Generation
As one day ends, another begins…six months since SIG University opened its doors, and three months since the students featured in this article graduated, our third cohort of students have just begun their Certified Sourcing Professional course. The experiences of the first two classes of students have been assessed and absorbed by the SIG University team, and feedback of the kind mentioned above has already proved invaluable in delivering immediate real-time improvements to the course.This is something to which SIG U is committed to doing on an ongoing basis, to ensure the very best experience and value is delivered to our students and thus to enable them to deliver the same degree of value to our profession as a whole. We firmly believe that by giving sourcing professionals the broadest and deepest possible knowledge set, in a structured way, combined with their sharing of their own learnings and experiences, we will be able to help drive the sourcing function further up the value chain and ever more firmly into the strategic sights of the wider organization – and we very much look forward to welcoming as many of you as possible into SIG University, to help us achieve just that.

Jamie Liddell is the Co-Head of SIG EMEA and Editor of Outsource, the leading global publication for the outsourcing, business services and business transformation space. During his five years at the helm, Outsource has grown from a compact UK-centric quarterly print magazine into a multi-faceted, globally facing content and event brand, delivering high-quality, high-level thought leadership to senior professionals the world over. Holding a Masters degree (in English) from the University of Cambridge, Jamie lives in London and is a proud parent, a published poet, and a terrible (if enthusiastic) singer.

Best Practices from SIG University Part II: The Real Deal

by Jamie Liddell, Editor, Outsource and Co-Head of EMEA, SIG

Jamie LiddellIn our second installment in the discussion on the value of education and more specifically a SIG U education, we discuss preconceived ideas and expectations. After the first class of students completed the training, SIG and Outsource’s Jamie Liddell interviewed students from Honda North America, PNM Resources and Florida Blue for candid opinions.

Preconceptions and Prejudices

Any prospective student contemplating a particular course will have preconceived ideas – however inaccurate – of that course and the institution providing it. In the case of this first cohort of students, of course, there was no existing commentary available to them from previous graduates of this specific course which could colour their expectations; nevertheless, the students could build a certain perspective on the reputation enjoyed by SIG itself – and for Tammy Way, a Sourcing Consultant for Generation at PNM Resources, this in particular gave rise to high expectations indeed: “Given SIG’s buy-side focus and collaborative knowledge sharing approach to just about everything, I fully expected the program to involve trainers from very diverse buying experiences who encouraged others to engage in discussions, share experiences and knowledge, and freely exchange tools and templates aimed at making the work a little lighter for all of us.” Thankfully, she added, “The course did not disappoint.”

Esteban Valenzuela, a project manager with Honda North America Indirect Procurement, on the other hand approached the course with minimal preconceptions. “I had a very open mind at the beginning of the class with little expectations. I understood that the coursework was still in its infancy and I was just grateful I had the opportunity to continue my learning.” While Allison Brown – a ten-year procurement and vendor management professional working for Florida Blue, the Blue Cross Blue Shield entity for the state of Florida – was, if anything, prepared to be disappointed: “Honestly I thought it would be a few CBTs (computer-based training) and a test at the end. I expected to have already known the majority of the information and wondered if this course would really be able to cover the many components of a successful procurement organization.”

The Real Thing

Three months on, and having arrived at the end of the course, how near – or how far – from these expectations had our students found to be the reality of their time at SIG University?

For Allison Brown, it was clear that the Certified Sourcing Professional program was a very long way indeed from “a few CBTs and a test at the end.” In her words, “This course really did provide the foundational information for every aspect that we coach our employees on…from the tactical components, such as contract language and how to perform an RFx, all the way to the strategic components of how to communicate with stakeholders and how to gain buy-in from the customer. For someone that knows procurement I would say that it was a great refresher and there were some helpful tips on some items I have not had in the past. There was a lot of information shared and thus a lot of information to absorb.” In what represents a glowing endorsement of the scope of the course, she concluded: “After taking the course I recommended to our leadership that if we have someone start our organization with little to no procurement experience they go through this course to gain foundational knowledge on all of the elements.”

For Tammy Way, initially, “The overall volume of materials weekly was a little overwhelming…however, overall it was an enriching experience that allowed me to think about different approaches to analysing opportunities and solving problems. Often, the material was a simple review of basic theory and concepts–many of which I had foolishly failed to implement into my daily work routine. The courses were a great reminder of the value of getting ‘back to basics’ and to stop trying to ‘reinvent the wheel.’ The instructors and facilitators were wonderful, responsive, clear and engaging. The audio presentations are short and cohesive. The platform is easy to use and access. The most successful aspects of the program are certainly the delivery of large volumes of information over a short time in a concise, well-organized, and meaningful way. It felt like a mini MBA with a supply chain focus was condensed into only those things that were more significant in the daily tasks of a working professional: all the fill, none of the fluff.”

Esteban Valenzuela, too, was “pleasantly surprised by breadth of the coursework…I felt that the range of topics contributed to the value of the course and brought to light new areas I had not explored. Additionally, the organization’s enthusiasm for feedback and user recommendations, along with speed to implementation really impressed me.”

For more information or to enroll in the third semester, click here.

Jamie Liddell is the Co-Head of SIG EMEA and Editor of Outsource, the leading global publication for the outsourcing, business services and business transformation space. During his five years at the helm, Outsource has grown from a compact UK-centric quarterly print magazine into a multi-faceted, globally facing content and event brand, delivering high-quality, high-level thought leadership to senior professionals the world over. Holding a Masters degree (in English) from the University of Cambridge, Jamie lives in London and is a proud parent, a published poet, and a terrible (if enthusiastic) singer.

Best Practices from SIG University Part I: Why SIG U?

by Jamie Liddell, Editor, Outsource and Co-Head of EMEA, SIG

Jamie Liddell“Education,” wrote John Dewey, “is not preparation for life; education is life itself.” That’s a philosophy that SIG has from its inception held very close to its heart: the idea that throughout our lives and our careers we should continue to learn and develop, not simply for the benefits that learning brings us – and our community – professionally but also because education is a good in itself. Hence the strong focus at SIG’s Summits, Symposiums and Roundtables, in our webinars and our Student Talent Outreach program – truly, in everything we do – on growing our members’ knowledge and understanding of the practice of sourcing and the environment within which we work.

The creation of SIG University was, therefore, a logical – perhaps even inevitable – step (and one which for quite some time our members had been urging us to take): a learning institution which formalises and places into a set of structured and progressive frameworks the knowledge which our students require to help them excel within their chosen profession, and which aims to elevate that profession to the point where its members can deliver genuine strategic value to their organisations. Drawing on the combined experience of many of the most respected thought leaders in the global sourcing space, the curricula offered by SIG University’s Colleges of Sourcing and Governance provide perspectives on their respective fields of a breadth and depth to which no other qualification in this arena comes close – and are delivered via a virtual classroom environment which ensures that our students don’t simply learn from the SIG U curricula, but also from each other, sharing their own perspectives and collaborating to create a genuinely global experience. From this combination of formal learning and intra-class discussion, SIG University’s students emerge certified and equipped with the knowledge and skills they need to take their careers to the next level – and to help do the same for the entire sourcing profession.

It is, of course, easy for us as an organisation to make such claims. However, just as SIG University has been built from the standpoint that our students have much vital information to teach and learn from each other, so we’d like our own messaging around SIG U to be combined with the perspectives of the students themselves – for only those who’ve walked the walk can truly talk the talk. With this in mind, at the end of the very first semester of the Certified Sourcing Professional course earlier this year, we reached out to some of the first batch of graduating students to get their take on the program – to share their experiences with the wider world and to offer first-hand accounts, rather than mere advertising, to those considering signing up for future courses, or simply wishing to find out more about what really goes on behind the virtual doors of SIG University

Why SIG U?

The first thing we wanted to find out was, why were our students our students in the first place? What were the drivers behind the decision to “go back to school” at this point in their careers, and why had SIG University – at that point, an entirely new and untested venture – ended up being their learning institution of choice?

For Allison Brown, a ten-year procurement and vendor management professional working for Florida Blue, the Blue Cross Blue Shield entity for the state of Florida, the decision had its grounding in the strategic needs of her organisation: “The procurement industry as a whole is an evolving industry and therefore it is difficult to find talent that contains the past experiences with the innovative thinking of where procurement should be headed. In the search for that talent we often find ourselves in situations where we are able to locate people willing to learn but do not have all the skill sets we need for the role. Therefore, we have been in search of a training program that would provide foundational procurement knowledge to provide to either current staff or future staff. When SIG University came out, we decided to have a leader in the department take the course to identify if this is something we could indeed use for that purpose.”

Meanwhile, for Esteban Valenzuela, working as a project manager with Honda North American Indirect Procurement in the Strategic Inventory Management team, “the decision to attend SIG U was easy. I have always been and continue to be a lifelong student. I am always looking for opportunities to expand my knowledge base.” Again, Esteban’s enrollment resulted from future requirements from his organisation – this time, however, more immediately focused on training: “The opportunity to attend SIG U came to me as an offering from my department management team. This was to be a pilot program, to evaluate future associates attending the course.”

It was the breadth of the curriculum which first attracted Tammy Way – Sourcing Consultant for Generation at PNM Resources – and her colleagues to SIG U, and which in her mind differentiated it from other certifying institutions in the procurement space: “I received an email advertisement regarding SIG University’s certification program and was immediately excited to find a program that focused on something other than public buying and logistics! As it turned out, my co-workers received the same email and were pursuing their own applications. Three of us completed the program together.”

With the third semester of SIG University’s CSP program kicking off June 27th, inquiring students want to know more! Stay tuned for more in this series or enroll now!

Jamie Liddell is the Co-Head of SIG EMEA and Editor of Outsource, the leading global publication for the outsourcing, business services and business transformation space. During his five years at the helm, Outsource has grown from a compact UK-centric quarterly print magazine into a multi-faceted, globally facing content and event brand, delivering high-quality, high-level thought leadership to senior professionals the world over. Holding a Masters degree (in English) from the University of Cambridge, Jamie lives in London and is a proud parent, a published poet, and a terrible (if enthusiastic) singer.

When Commodity Prices go South, Commodity Manufacturers get Innovative

by guest blogger, Joel Johnson, Director, GEP

Joel JohnsonFew areas of the economy have faced stronger headwinds over the past year than those occupied by commodity manufacturers. Chemicals, steel and plastics are all feeling the effects of China's economic slowdown in a highly competitive and price sensitive marketplace. Many of the top commodity manufacturing firms have reacted decisively to these conditions; however, after the first wave of layoffs are complete and excessive overhead costs are reined in, the prospects still remain gloomy. The sustained impact of depressed demand and oversupply are forcing executives to look inward for additional, innovative sources of cost savings. The positive news for many organizations is that the "good years" of strong demand and rising prices have left behind pockets of inefficiency and waste that can be structurally addressed in the interest of long-term corporate competitiveness. A few examples of such opportunities are as follows:

  • Shared Assets – there is no better opportunity to break down internal silos than the burning platform of corporate hardship. Many manufacturing plants have segmented their sites into areas on the basis of production and infrastructure zones. There can be tendencies to retain rented, leased and owned equipment as well as maintenance craft resources in individual areas without providing visibility to the larger plant site. This can result in duplicative expenditures that could be mitigated through increased coordination and communication amongst areas. Additionally, there is often a tendency for plant maintenance personnel to retain maintenance and repair supplies outside of central storerooms, often for the purpose of convenience. By encouraging the reintroduction of these items into central stores, plants can obtain greater inventory visibility and prevent unnecessary re-orders.
  • Efficient Maintenance – Many struggling manufacturing companies must react to an environment where base demand for plant maintenance and repair services exceeds staffing levels. This is a function of budget restrictions and cost cutting efforts that result in headcount reductions for both the internal and contracted workforce. Rather than letting plants slip into a state of disrepair, companies have the opportunity to optimize work management and maintenance planning. A reassessment of preventative maintenance based on historic data and internal expertise can drive step-change cost improvements. Autonomous maintenance programs also represent an opportunity to enable the remaining workforce and ensure plant staff is fully leveraged. Under these programs, machine operators assume responsibility for simple and safe maintenance activities rather than relying solely on the maintenance organization.

The broader lessons of a commodity manufacturing downturn can be summed up in the words of Rahm Emanuel. “Never let a serious crisis to waste.” Tumultuous market conditions can either be an opportunity for manufacturing organizations to shift their internal paradigms or risk death by a thousand cuts. Those that take a strategic approach position themselves well to weather the downturn and reap the benefits of an inevitable rebound.

Joel Johnson is a Director at GEP and is responsible for leading the strategic sourcing efforts of consulting teams for CPG and Consumer Durable clients. He specializes in logistics and also has experience in a series of other indirect categories including professional services, marketing and direct materials. He brings experience managing large stakeholder teams across a global clientele base. His areas of expertise include strategic sourcing, global solution development, process transformation and innovative sourcing practices. Joel has earned a Bachelors Degree in International Business and Finance from Georgetown University. For more interesting thinking on procurement, visit the GEP Knowledge Portal.

Sourcing Thought Leaders…Enter the SIG U Writing Competition

by Jamie Liddell, Editor, Outsource and Co-Head of EMEA, SIG

‘JamieAs the editor of Outsource (a member of the SIG family, of course, since January this year) it’s my great privilege to publish articles by some of the best-known figures in the space: authors whose very names have become synonymous with cutting-edge thought leadership and the kind of insight which itself drives change within this dynamic, fascinating industry. However, it’s also always crucial for me to remember that great insight and high-quality communication are not the sole preserve of the established sourcing superstar; that right now, out there scattered across the wide, wild world are a host of undiscovered B2B literary marvels – as-yet-unsung thought leaders whose talents lie like diamonds, buried but waiting only for the miner’s pick to swing in the right direction.

Well, it’s time for Outsource to go mining…we’re launching a writing competition aimed at discovering those diamonds and bringing them out into the light – and, what’s more, thanks to our excellent colleagues at SIG University we’ve got the perfect prize with which to tempt the next generation of outsourcing authors to sharpen their quills: a place in the next semester of the Certified Sourcing Professional course! (And if the winner doesn’t meet SIG U’s entry criteria he or she can transfer the prize to a colleague who does; how’s that for a way to grab the attention of the top brass?)

In launching this unique project with Outsource, SIG U’s Vice President Mark Pollack says: “This is an exciting competition where we hope to find Sourcing’s Next Top Talent and follow their journey into SIG University and beyond. We are confident that this global competition will bring forward a host of creative writers and innovative industry experts, and give them the very best global platform from which to showcase their cutting-edge thinking. We are proud to be co-sponsors of this event with Outsource, and look forward to hearing from and getting to know the budding thought leaders who will help redefine sourcing and governance.”

To enter, aspiring authors need to don their thinking caps and tackle the following question:

“What will be the most important drivers of change in the global sourcing arena over the next decade, and why?”

Articles must be between 1,000 – 2,000 words; in English; completely original (of course!) and supplied (along with a photo and 100-word bio of the author) in Microsoft Word format to me at jliddell@sig.org with the subject line “WRITING COMPETITION ENTRY” before midnight UK time on July 31. Importantly, nobody who’s been published previously by Outsource is eligible (this is all about finding undiscovered talent); for more on eligibility and fine-print-y stuff in general, see the full list of terms and conditions on the Outsource site.

All valid entries will be judged by our panel and a selection of the best will be published on www.outsourcemag.com prior to the announcement of the winning entry towards the end of August. We’ll also be covering this competition heavily on social media and through our other channels – including, possibly, on our Outsource Talks webinar series (taking place on the third Wednesday of every month at 10:00 am Eastern: don’t miss it!) – to make sure that our entrants’ efforts are rewarded with the best possible exposure to our global audience and beyond.

To return to the mining metaphor, the SIG community is of course a potentially very rich seam of gold for this competition; even if you’re not a hidden Shakespeare yourself, you could still play a part by pointing your colleagues towards this competition – and, if nothing else, make sure you keep an eye on the Outsource site (www.outsourcemag.com) and on our Twitter feed (@outsourcemag) throughout August for what I’m sure will be a veritable feast of fantastic writing from some of the next generation of sourcing and outsourcing superstars!

Jamie Liddell is the Co-Head of SIG EMEA and Editor of Outsource, the leading global publication for the outsourcing, business services and business transformation space. During his five years at the helm, Outsource has grown from a compact UK-centric quarterly print magazine into a multi-faceted, globally facing content and event brand, delivering high-quality, high-level thought leadership to senior professionals the world over. Holding a Masters degree (in English) from the University of Cambridge, Jamie lives in London and is a proud parent, a published poet, and a terrible (if enthusiastic) singer.

Seven Imperative Steps to Strategic Sourcing

by guest blogger, Shruti Agrawal, Excella Worldwide

‘Shruit_Agarwal’Vying to become a world-class procurement agency? Not sure what competencies you need to become a leading supply chain organization? Here are seven ways to help you navigate through the complicated sourcing process from scratch:

    1. Bifurcating Corporate Spend into Categories – This will help in identifying suppliers and determining company’s initial spend. Prepare a spend map for each procurement category while keeping in mind the market competitiveness, sourcing bottlenecks, supply risk and price. Once your matrix is ready, you need to understand: The usage patterns for each product category; shipping specifications; and future demand projections.  Having analyzed all these areas, you will be in a better position to formulate an accurate and reliable sourcing strategy for each product category.
    2. Assessing the Supplier Market – Study existing market trends and supply chain dynamics to know your risks and opportunities when dealing with a diversified supplier base. You can determine your “should cost” data by following the standard practices of key suppliers. The sub-tier marketplace also makes a great tool in determining costs and driving improvement.
    3. Gathering Knowledge of Key Areas – Develop a checklist for both existing and potential suppliers to verify your predetermined spend information. The data derived from the sales system of suppliers will help you evaluate if they are fully equipped to meet your sourcing requirements in terms of: feasibility, volume and technical capability. This checklist will help you narrow down your supplier base while ensuring that your chosen vendors have the required structure and resources to respond to your requirements in a timely and efficient manner.
    4. Developing a Sourcing Model – This is the most crucial phase which involves three important steps that make a solid and reliable sourcing strategy. Let us take examine how this three-step process can help you become a competent sourcing agency:
      • Assessing the competency of the supplier marketplace – When you are armed with all the supplier information you need, you are in a position to create a competitive edge in the market. Once you have determined the pricing structure, you can communicate the same to your potential supplier base to gauge their capabilities.
      • Identifying alternatives to reduce costing and improve processes – A collaborative approach allows you to leverage competitive pricing and increase profitability. For this, you may need to invest in supplier operations which in turn will improve your business processes. Consider every alternative to create a feasible sourcing strategy that fits your spending capabilities. Adopting new technologies will reduce procurement complexities and create corroborative improvements.
      • Evaluating the efficiency of your sourcing agents – Your sourcing agents play a vital role in managing the costs, so they should be competent enough to test supplier relationships. Since they would be consuming most of your spend category, they should be able to handle cost reductions efficiently without putting your supplier relationships at stake. The key objective of your sourcing agents should be cost competitiveness, but they should be able to achieve this goal without making any compromises on client servicing. The ability to foresee impending risks and find ways to overcome them is a prerequisite for a successful sourcing business.
    5. Sending out RFPs to Suppliers – A competitive sourcing strategy needs a request for proposal that clearly defines your sourcing requirements to your potential suppliers. The bid should include everything from your evaluation criteria and service specifications to the pricing structure and financial terms. Once all the RFPs are sent out to your prequalified suppliers, allow them enough time to respond to your proposal. You can send follow-up messages to avoid delay and encourage a positive response.
    6. Negotiating With Suppliers – Once the RFP responses start flowing in, it is time to evaluate them against your predefined assessment criteria. This will help you narrow down your supplier list. Negotiate with the finalists and compare the outcomes in terms of cost differences. Brief your team of sourcing agents on the final selection and be sure to take their approval. Keeping them in the loop will ensure that they are prepared to take calls from disappointed suppliers.
    7. Developing a Communication Plan for New Suppliers – Once you have notified all your shortlisted suppliers, it is important to send out the invites for participating in the implementation process. It is now time to implement your communication plan for effective management at every point. This communication plan should include every aspect of the sourcing process right from pricing model and spend category to quality requirements and delivery period. Be sure to involve the finance and customer service department in the plan as any change in the sourcing process will affect their performance and decision-making process.

The first few weeks are critical for every sourcing specialist, so monitor every step closely. The start being the most sensitive timeframe for every new business, you need to ensure that every point in your plan is perfectly executed and makes the most of your capital investments.

As the Director at Excella Worldwide, Shruti Agrawal is a strategist with an Electronics Engineering background and always on the lookout for ways to challenge and disrupt business models to make them better.

Is the sharing economy changing the procurement landscape?

by guest blogger Ana Sofia Gomez, Senior Associate, GEP

Ana GomezThe digital era is creating new paradigms as it relates to commercial relationships between business and individuals. It’s not a new concept, but it is getting stronger each day and changing the way people contract services and products. The sharing economy is a system in which its users share and exchange goods and services through digital platforms. Uber and Airbnb are some of the most popular examples that are revolutionizing the market, with their respective target markets in the transportation and accommodation industry. Could this new business model also change how organizations contract services and products? Could the new sharing economy open up opportunities for organizations to achieve their constant search for cost optimization?

The benefits that emerging businesses in this space can bring include the provision of cost-effective services and products with reduced lead times. Additionally, these technological applications help to identify available resources in a certain geographic proximity that meets the needs of a company. Another benefit is to directly contract services eliminating the brokerage relationships characteristic of the truckload and 3PL Industry. The Uber model could change and replace traditional freight brokers. Right now there are some companies preparing to support this new business model which gives small truckers the opportunity to offer their spare capacity and resources.

Companies that are looking to optimize their costs can take advantage of this concept and implement themselves. They can leverage the idea of a sharing economy and offer spare capacity and resources to other businesses. The challenge for some companies is determining how best to establish formal sharing arrangements that rule and govern the performance of the contracted service.

Companies have to consider and evaluate what type of products or services would be suitable for this kind of model. It will depend on the core business of the organization and the internal rules or regulations that the company defines to contract services in this model, like taking care of the safety, quality and lead times. For example, in the accommodation market, Airbnb could be an outlet for the business travelers, nevertheless, due to concerns of security and safety of the employees, some companies are ruling out the use of this option. In the truckload industry, companies that utilize shared service providers have to evaluate how to make sure that the contracted provider meets security requirements for the loads.

Technology is leading to increased connectivity among various consumers and providers in the area of contracted services and products. The shared economy model can be an innovative way for companies to assess new options to reduce costs or/and optimize the use of their current resources. Despite these opportunities, corporations will need to proceed with a degree of caution and work to define formal arrangements that help to regulate this kind of deal.

For more interesting thinking on procurement, visit the GEP Knowledge Bank.

Ana Sofia Gomez is a Senior Associate at GEP and has more than 9 years of experience in Strategic Sourcing and Procurement. Ana Sofia has led strategic sourcing and category management projects, covering spend analysis, supply market analysis, RFP development and execution, supplier evaluation and negotiations strategy. Ana has delivered strong savings on strategic sourcing categories across the Latin America geography. She has engaged in a diverse variety of projects in the fields of MRO, General and Professional Services, Information Technology and Logistics. Prior to joining GEP, Ana worked in Aquanima (Santander Group) executing various strategic sourcing projects in the Technology and Services categories and managing e-procurement events.

Sports Contract Negotiations: A Holdout that Worked

by guest blogger Ajay Perumal, Senior Associate, GEP

Ajay PerusalWith global sports industry revenues over $145Bn and growing at a rate of 3.7% over the past 4 years, it is evident now more than ever, that behind the tackles and buzzer beaters, sports remains a business. Negotiations in business are usually governed by several tangible measurable data points that are indicative of future performance. Given below are a few aspects that are unique to negotiations in the sports industry:

  1. No defined “pie” – Duration, guarantees, team objectives lead to a constantly changing and fluid negotiating environment
  2. Unpredictability – A player’s performance on one team may not necessarily translate to similar performances in a changed setting
  3. Public Nature of Negotiations – Every move is scrutinized, dissected and analyzed and public image can make or break a sports franchise and player
  4. Multiple parties – Teams, agents, and players all play a role in the outcome of a negotiation. The passive role played by fan bases and the media can be just as vital and is often overlooked

These factors manifest themselves in very different ways resulting in new clauses, levers, and bargaining chips being used with every passing season. There exist several parallels that can be drawn between sports negotiations and negotiations conducted by supply chain professions on a fairly regular basis demonstrated by the example given below:

Scenario: The Cleveland Cavaliers were 2 wins away from winning their first NBA championship in 2015. Tristan Thompson, a huge contributor, elevated his game in the absence of several key players. That said, he would never be more than a supporting player in a team with 3 perennial all stars. Thompson’s contract was now up for renewal.

Free Agency: At the end of the 2015 season, Tristan Thompson entered restricted free agency which meant that the Cleveland Cavaliers were allowed to match an offer from any other team to sign Thompson. It was unlikely that another team would be willing to extend a large offer given NBA cap restrictions and Thompson’s limited on court value. The Cavaliers were seemingly negotiating from a position of strength.

Meanwhile, Thompson was seeking the max: Subsequent negotiations took an interesting turn when it was publicly reported that Thompson had rejected several proposals from the Cavs while conveying he was seeking a max contract (a five year guaranteed contract worth $94M). This was an extremely well thought out move on Thompson’s part because (a) prior to this declaration, there was no objective baseline to establish his value; and (b) several public comments from Lebron James mentioned his close relationship with Thompson. This showed his sports agent, Rich Paul that Thompson was worth more than his on court presence, since he was also valued highly by the team superstar, whom the Cavs could not afford to displease.

Rich Paul suggested that Thompson would accept a qualifying offer: If no deal was reached, the Cavaliers would give Thompson a 1 year qualifying offer of $6.8M after which Thompson would become an unrestricted free agent in 2016. Thompson’s agent, Rich Paul, publicly announced that Thompson would take the qualifying offer. With this step, Paul declared his BATNA (Best Alternative to a Negotiated Agreement) to all parties while effectively providing a threat and ultimatum to the Cleveland Cavaliers.

But Thompson did not accept the qualifying offer: The deadline for Thompson to accept the qualifying offer passed with neither party reaching an agreement. By not extending the deadline, the Cavs called Thompson’s bluff, thus strengthening their position further.

A few days later, the Cavs and Thompson shockingly agreed to 5 year $82 M deal, in essence a $12 million/year raise, making him the highest paid bench player in the NBA.

So how did Tristan Thompson manage to pull off a seemingly impossible deal? At no point during the negotiation, did Thompson have a strong BATNA. Additionally, his options decreased substantially with every passing week. On multiple occasions, procurement professions face a very similar situation in a negotiation where they are seemingly out-leveraged with minimal negotiating power. Using strategies from this example, one can often turn these positions of weakness into positions of strength.

The key throughout this negotiation, was identifying the tradeoffs that each party was willing to make, and understanding that this was a classic case of interest based bargaining. For Thompson, the interests were purely financial. For the Cavs, their primary interest was winning a championship. Given the financial investments that they had already made, an additional expense was secondary if it resulted in a championship team. Rich Paul perfectly understood the Cavs’ interests, knowing that it was only a matter of time before the franchise put a favorable deal on the table so that the focus could shift back to their primary interest of winning a title.

When reexamining this deal from the perspective of interests, it seems more like a win-win situation with both parties satisfying their needs. To that end, the holdout paid dividends and Thompson walked away with a deal well above his market value. This scenario provides a great example of how creative methods can be used to gain a position of strength by focusing on interests rather than positions – a key lesson that can be incorporated into large vendor negotiations.

For more interesting thinking on procurement, visit the GEP Knowledge Bank.

Ajay Perumal is a procurement and supply chain management consultant at GEP, based in New Jersey. He is involved in procurement transformation initiatives at various industries with a sharp focus on delivering bottom line value. Ajay holds a Master’s degree from Columbia University in Management Science and Engineering.

The “Dollar Store” Phenomenon – Does it Exist in Procurement?

by guest blogger, Rajiv Gupta, Head of Procurement Services, Americas, Infosys

With kids back in school, many parents like me are reflecting on what has become an annual ritual of buying necessary school supplies and of course an equivalent amount of not-so-necessary ‘things’ to decorate or accessorize school lockers, shelves, backpacks, clothing, etc. So while the leading retailers like Staples…Office Depot…Walmart…Target and other cash in on this period with attractive deals, our friendly neighborhood ‘fiVeBELoW’ comes in very handy for all those non essentials. Don’t get me wrong, sometimes compulsive bargain hunters (once a buyer always – a buyer) like me can also find deals for the back-to-school essentials and a number of other things at ‘fiVeBELoW.’

I often wonder if there exists a similar pattern in enterprise spending…meaning, does a similar phenomenon (the anything and everything at places like fiVeBELoW – for cheap or let us call it really low dollar spend buys) exist in enterprise buying, especially when we are talking about indirect spend.

Throughout my Procurement career, I have come across companies with annual indirect spend ranging between a couple of million dollars up to and in excess of 15-20 billion (though they are very few). Spend items/services…what in old days used to be called ‘petty’ cash kind of spending…exist everywhere (the $$ amount may vary from a few thousand to a double digit millions), essentially exhibiting with one or more of the features as below.

  • Brand name – doesn’t matter
  • Need a strategic vendor, contract, approved supplier etc. or not – doesn’t matter
  • Getting in time to fulfill a pressing requirement – matters almost always – thus requiring no formal due diligence and low importance on price/vendor discovery
  • There could be many more of such qualifiers/disqualifiers that my colleagues or readers could add…

If any one (or more) of the above is true, (even with different specifics for things like volume and spend, types of items, settlement instruments, etc.), then really the question (s) to be asked are…

Should it be allowed? I think the answer to me would always be a difficult yes (as my buyer soul doesn’t agree to buying things without some sort of a due diligence and price/vendor discovery). Although we would like to control our own spending as strategically as possible (buy in bulk – make fewer visits, source coupons where available, look for deals, go to big retailers like Costco, Sam’s Club etc.) one might wonder how many visits to places like fiVeBELow are required in life. Hence, such spends whether we like it or not would exist. The proportion of such spending may vary depending on many variables such as:

  • Industry – Banks may have a different general proportion than say hospitals which in turn may have a different proportion than hotels which in turn may have a very different proportion than technology companies.
  • Procurement Structure and State of Process Maturity – How well procurement is structured, center-led, centralized, shared services, outsourced etc. in turn will determine how those firms manage spends of such nature.
  • Size of Overall Indirect Spending – How much the overall indirect spend and the supporting procurement structure are also determine the occurrence and even more, management.
  • Governance and Control – How many organizations (typically large) allow or do not allow the users to buy themselves, what kind of processes, governance and controls are in place? For example, many large organizations allow the business to handle the low dollar “tail” spends themselves.
  • Geographic spread, Business diversity – Number and types of business lines and how they manage procurement are also important variables.

How should it be allowed? This is an interesting subject and I am sure, there could be a long debate on this with clearly not-a-one-size-fits-all approach and with each unique situation requiring its own specific treatment. What perhaps could commonly be agreed upon, may include one or more of the following:

  • The support infrastructure shouldn’t cause a big drain on the existing procurement structure, limited to no involvement from Procurement teams. Let’s understand this a little better. Large enterprises which spend hundreds of millions on indirect spend, perhaps are better off with their lean procurement teams focusing on managing bigger spends and tail spends (even if companies outsource their tail spends – it needs a constant supervision, governance and management). Small and medium enterprises are too constrained to have the right skills, processes and tools and at the same time, their primary focus should remain on increasing top line than really looking at such small spends of $100/$500/$1,000/$5,000 USD and below.
  • Drawing from the analogies in top sections, it shouldn’t delay decision making and fulfillment. Spends with any or few of the characteristics in earlier sections – shouldn’t consume enterprise resources for decision making and also shouldn’t become the roadblock in day-to-day business.
  • A threshold is defined to distinguish what could be channeled as this spend – less than $100/$500/$1,000/$5,000 USD.
  • To the extent it can, the process – or let us call it experience – should be simple and virtually not exist. (I know this last point can evoke some interesting debate but let me put it out there).

These are just some questions to begin with, there could be many more. If we ask the right questions, we will find better answers. The key is to socialize an issue which has caused pain to procurement experts for years without a commonly acceptable solution. There may not be a commonly acceptable solution in the first place but I guess, whatever the answer is, there does exist an interesting ‘fiVeBELoW’ phenomenon in enterprise indirect spending. Some of us have tried to characterize it and call it fancy names such as ‘tail spend,’ etc., but these are two different discussions, in my opinion.

Rajiv Gupta is the Geo-Business lead responsible for the Americas region of Infosys‘ Sourcing and Procurement BPO practice. Rajiv is responsible for leading client partnership, solution blueprinting and outsourcing solution architecting across the Americas. Rajiv leads a team of global category managers for category management delivery across the Americas. He also leads global marketing and branding for the sourcing and procurement BPO.

The Recipe for Successful Supply Chain Risk Management

by guest blogger, Heiko Schwarz, Managing Director, riskmethods GmbH

Even if you have a resilient risk management strategy in place, situations can arise that are out of your control. On the bright side, supply chain risk management provides the opportunity to differentiate and gain a competitive advantage. Advantages may include quicker crisis response time, adherence to regulatory requirements and ethical compliance, ensured internal quality standards and avoidance of sales shortfalls and image damage. If Supply Chain Risk Management (SCRM) is an interesting topic for you, I invite you to read the following recipe that not only outlines the single ingredients needed for a comprehensive supply chain risk management process, but also highlights how you can integrate SCRM within your organization.

Ingredient 1: Selection of Relevant Supply Chains
First, define which supply chains to focus on and to include in SCRM. In principle, one of two approaches can be used: 1) monitor all supply chains or 2) monitor a very specific section of the supply chain. The following parameters can be used and taken into consideration for specifying which to select: impact on sales/image, region, customer specification, purchasing volume, regulatory requirements, etc.

Ingredient 2: Definition of Risk Inventory
Typically, the risk inventory is recorded in a risk scorecard. This scorecard includes all individual risks and indicators, which act as sensors for detecting risk changes: supplier risk (e.g., insolvency, CSR compliance), location risk (e.g., natural hazards, strikes) and country risk (e.g., political or macro-economic).

Ingredient 3: Supply Chain Visibility
Approximately 51% of all supply disruptions originate below the tier 1 supplier. It is therefore important to capture the 1st tier of the supply chain structure and the supply chain substructures including 1-n tier suppliers and supply paths.

Ingredient 4: Risk Identification
Information from a large number of world-class databases is necessary for both an initial assessment of latent supply chain risks as well as real-time risks happening around the world. You also need to ensure relevant, dependable and comprehensive data, timely delivery of this data, in addition to accessibility and automation of the data via an early warning system.

Ingredient 5: Impact Assessment
For risk events it is necessary to know the criticality of the supply chains affected. In many cases, determining category-specific criticality is crucial. The category details scrutinized in the impact assessment allow organizations to initiate suitable and focused action plans.

Ingredient 6: Risk-Minimizing Measures
Interpreting current threats and their impact provides the necessary foundation in order to determine which action plans should be taken. Here it is important to differentiate between reactive measures for minimizing the impact in the case of unavoidable risk, and preventive measures for precautionary risk avoidance and reduction.

Ingredient 7: Integration with Procurement Processes
Supply chain risk management processes can not only benefit from other procurement procedures, they can also support them. Involvement in the following procurement processes may include sourcing, supplier assessment and qualification, supplier dashboards and supplier audits.

Bon appétit!

Hungry for more? Download our whitepaper to find out the remaining ingredients.

Heiko Schwarz is a founder and managing director of riskmethods, and is responsible for Sales, Marketing and Business Development. Heiko has been working in the software business for 13 years, with 11 years in different areas of the strategic purchasing market. As a sales expert and insider in the area of supplier management and risk management, he was most recently employed by IBM/Emptoris, where he was responsible for global sales and know-how transfer of the Supplier Management product line. With his business partner Rolf Zimmer, Heiko had the idea of an innovative SaaS solution for comprehensive Supply Chain Risk Management and founded riskmethods in 2013.